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Following Europe's Lead, U.S. Mobile Firms
Have Begun Switching to GSM Technology

By

Edward Harris Staff Reporter of The Wall Street Journal

Updated Oct. 31, 2001 12:01 a.m. ET

STOCKHOLM -- The U.S. is finally joining the global telecom pack, and it's the Europeans who stand to really benefit.

Tuesday's announcement by Cingular Wireless, the second-largest U.S. mobile carrier, that it is converting to the global system for mobile communications, or GSM, provides a big boost to Finland's
Nokia Corp.
,
Telefon AB L.M. Ericsson
of Sweden and Germany's
Siemens AG
, which sell GSM equipment.

Cingular said it would award equipment contracts to the three European companies. Financial details weren't released, but Cingular is expected to spend more than $3 billion (3.3 billion euros) to change its technology, said people familiar with the situation.

"GSM is clearly the world's choice for wireless technology," said Stephen Carter, president and chief executive of Cingular. "Plus, having a common technology throughout the U.S. will allow us to provide additional capabilities and features for our customers."

The development -- following a similar GSM move by
AT&T Wireless,
the U.S.'s third-largest mobile operator, and Voicestream Wireless, a unit of Germany's
Deutsche Telekom AG
-- indicates that the global telecom industry is finally beginning to coalesce around one standard. That standard, GSM, was pioneered by Europe 10 years ago -- and European equipment makers continue to dominate.

Europeans Are 'Beating Down the Door'

"For the North American telecom vendors, their home turf is not as safe as it once was," says Jason Chapman, an analyst at Gartner Group in London. "The Europeans are now beating down the door to the cellular market in North America."

Ericsson and Nokia "could both see a spike in sales, and this should further strengthen their position in network infrastructure," said Urban Ekelund, an analyst with consultants Redeye AB in Stockholm.

The decision by Cingular, a joint venture of
SBC Communications Inc.
and
BellSouth Corp.
, marks a setback for
Lucent Technologies Inc.
of the U.S., which supplies Cingular with a competing technology, TDMA, or time division multiple access. A Lucent spokesman said the company has an existing contract with Cingular and will continue to work with the company.

The Cingular move toward GSM couldn't have come at a better time for Europe's telecom-infrastructure makers, which have been hit by delays in Europe's adoption of so-called third-generation mobile services, or 3G. The idea behind 3G is that it will allow fast mobile Internet connections.

European operators spent more than 100 billion euros last year on government licenses to provide 3G services, but they are now paying down huge debts rather than buying new equipment. At the same time, economies around the world are sliding, causing further uncertainty among the telecom operators. Many have drastically scaled back investment plans, hurting sales of network-infrastructure vendors such as Ericsson and Nokia.

GSM Moves Toward Dominance

Ericsson, for example, last week reported massive losses in the third quarter and predicted that the market for telecom gear will shrink by as much as 10% in 2001. Nokia has fared better, due to its world-leading 35% market share in handsets, but its networks unit has recently struggled.

GSM is currently used by about two-thirds of all mobile subscribers, according to the GSM Association trade group, and is pervasive in Europe and most of Asia. European telecom-infrastructure manufacturers have an overwhelming dominance in the GSM market: Ericsson, the market leader for GSM equipment, says it has about 40% of the global market, while Nokia is the second-largest player.

North American telecom operators largely struck out on their own, adopting several different network technologies such as TDMA. Their networks were often built by hometown players like
Motorola Corp.
,
Qualcomm Inc.
and Lucent, all of the U.S., and Canada's
Nortel Networks Corp.
In addition, another technology known as CDMA -- code division multiple access -- still has a strong following among U.S. operators such as
Sprint PCS,
a unit of
Sprint Corp.

Yet the Cingular and AT&T Wireless announcements suggest that GSM may be cementing its position as the world's leading standard.

'Already the World Standard'

"Having another big company join the GSM crowd adds to the legitimacy" of AT&T Wireless's decision, Rich Blasi, an AT&T Wireless spokesman, said. "By moving to GSM, you're moving to what is pretty much already the world standard."

The U.S. shift toward GSM could also make it more likely, analysts say, that at least some U.S. operators will follow Europe's lead on 3G by using a technology known as wideband code division multiple access, or WCDMA. Ericsson and Nokia have strong positions in this technology.

U.S. operators looking ahead to 3G may be able to avoid some of the costly mistakes made by European carriers. "The American operators will be in the enviable position of seeing the Europeans' experience with 3G, and avoid their teething problems," says Mr. Chapman of Gartner Group.